As big shareholders of Knight Ridder Inc. pressure executives to consider selling the nation’s second-largest newspaper company, an increasing number of industry veterans say the fight’s outcome could write the future of print journalism.
Like other chains, Knight Ridder has responded to readers and advertisers migrating to the Internet by investing in Web versions of the print product, cutting costs and experimenting with free papers.
But as industrywide circulation figures released Monday made clear, the most traditional form of journalism is losing ground at an accelerating pace. Of the country’s 20 largest daily newspapers, only two sold more copies in the six months through September than they did in the same period a year before, and the overall 2.6% drop in weekday circulation was the biggest since 1991.
“Those who are responsible for running these companies have not been able to make the kind of adaptive changes they need to in order to stay competitive,” said Bob Giles, curator of Harvard University’s Nieman Foundation for Journalism.
Although newspaper companies still are more profitable than many other industries -- operating margins of more than 20% are common -- revenue is growing slowly and corporate owners are tending to funnel earnings into other areas rather than pay them out as dividends.
Last week, investors owning more than 35% of San Jose-based Knight Ridder said they were tired of waiting for management to turn around a share price that had tumbled from almost $80 a year and a half ago to a recent three-year low of $52.58.
In public filings, they urged the board to consider putting the company up for sale. The biggest investor, Private Capital Management, said it would even support a hostile takeover of the company that owns the San Jose Mercury News, the Miami Herald, the Philadelphia Inquirer and 29 other daily papers. Knight Ridder has declined to comment.
Investors are betting on a profitable resolution. The stock has climbed 18% since Nov. 1, when talk of a sale surfaced, closing Monday at $62.99, up $1.51.
Knight Ridder’s situation illustrates a larger predicament for newspaper executives, who are under pressure to improve their product at the same time that they are being urged to cut expenses to increase profits.
The most recent circulation declines at the Mercury News, the Herald and the Inquirer came to a cumulative 3.7%. Among bigger papers, the Los Angeles Times’ average weekday circulation fell 3.8% to 843,432 and the Washington Post’s declined 4.1% to 678,779. With its national circulation strategy, the New York Times had the only significant gain in the top 20, adding 0.5% for just over 1.1 million subscribers.
Papers in Houston, Boston and Atlanta all suffered declines of more than 5%. In San Francisco, the Chronicle saw its weekday circulation plunge more than 16%.
The Newspaper Assn. of America said Monday that it is was encouraging advertisers to follow not just circulation but also surveys that show that many readers may see a single printed copy of a paper. For example, nearly 2.4 million people a day read the Los Angeles Times and 1.8 million read the Washington Post -- about three times the circulation for each paper, the association’s figures show.
Online readership also has grown substantially. The San Francisco Chronicle, for example, reports more than 70 million page views a month.
“When you consider the number of people reading us online, we are really expanding our number of readers,” Chronicle spokeswoman Patty Hoyt said.
Some past Knight Ridder executives, including former Miami Herald Executive Editor Doug Clifton, said the chain made itself into a tempting target by refusing to cut back on editorial expenses as ruthlessly as did its more profitable competitors.
Clifton and current Herald Executive Editor Tom Fiedler both said were concerned that Knight Ridder would cut more deeply soon.
“We are subject entirely to the dictates of our investors,” Fiedler said. “If they are looking only at what they believe this business can return and not the special type of mission that we fulfill, then I worry about that a lot.”
Others contended that previous cuts were at least partly responsible for the shareholder discontent.
Former Mercury News Publisher Jay T. Harris, who resigned in 2001 rather than make planned layoffs, said Knight Ridder had accepted Wall Street’s short-term profit emphasis and had reduced quality, thereby making itself less essential to readers.
“I don’t want to say that it’s only because of the cuts in the journalistic endeavor -- and the consequences of that -- that this has happened,” said Harris, now on the faculty at the USC Annenberg School for Journalism. “But I think it’s likely ... that it has at least accelerated getting to this point.”
In either case, if shareholders force the sale or the dismantling of Knight Ridder, few in the newspaper industry expect the revolt to stop there.
Private Capital is the largest shareholder in New York Times Co. and McClatchy Co., and ally Harris Associates, Knight Ridder’s third-biggest investor, also has holdings in top chain Gannett Co. and Tribune Co., owner of the Los Angeles Times.
New York Times, McClatchy and some others are family controlled, making it difficult for outside shareholders to force any action.
Of the move on Knight Ridder, “it has the feeling of a momentous event,” said Clifton, now the top editor at the Plain Dealer of Cleveland. “There’s a whole range of options, none of them especially pretty.”
Others say that, under some scenarios, ownership changes at Knight Ridder or some of its peers could benefit both investors and readers.
A sale at a rich price could revive faith in an industry in which investors “have never felt so negative,” said Morgan Stanley analyst Doug Arthur. Other newspaper stocks have risen along with Knight Ridder’s in the last week.
The leading possibility cited by stock market analysts and by Harris Associates money manager Henry Berghoef is the purchase of Knight Ridder by another major media company, such as Gannett or Tribune. They are among the few companies with both newspaper expertise and enough cash to make a deal happen. After the recent stock run-up, Knight Ridder’s market capitalization is more than $4 billion.
For those companies, the benefits of buying Knight Ridder would be the opportunity to sell advertising across a greater number of papers and the ability to cut business-side costs by eliminating overlapping jobs.
Gannett executives said recently that they would look at any acquisition opportunities, but Gannett and Tribune declined to comment specifically on Knight Ridder. Analysts say Tribune, whose stock price is down 20% this year, suffers many of the same problems as Knight Ridder.
A buyer such as Blackstone Communications Partners or Providence Equity Partners, which have grown bigger and more interested in the media, could also emerge. In 2003, Blackstone and Providence took a combined 40% stake in Orange County Register parent Freedom Communications Inc.
“Arguably, a private equity player would be more patient,” said independent newspaper analyst Harold Vogel. “A private equity player is not going to be horrified if the quarterly earnings come up short.”
The third possibility is a breakup, either by Knight Ridder or by a new owner who could sell off individual papers, reversing a decades-long trend toward consolidation.
Former Mercury News Publisher Harris isn’t optimistic that any of the options will be good for journalists.
“It’s not impossible to conceive that there would be a good outcome from this,” he said. “But it’s highly unlikely.”
(BEGIN TEXT OF INFOBOX)
At a glance
Knight Ridder Inc.
* Founded: 1974, through a merger of Knight Newspapers Inc. and Ridder Publications Inc.
* Headquarters: San Jose
* Chief executive: P. Anthony “Tony” Ridder
* Newspapers: 32 dailies, including the Philadelphia Inquirer, the Miami Herald and the San Jose Mercury News; one weekly
* Daily circulation: 3.4 million (as of Sept. 25)
* Websites: 34, operated by Knight Ridder Digital
* 2004 revenue: $3 billion (up 2.3% from 2003)
* 2004 net income: $326.2 million (up 10.2% from 2003)
Source: Times research
Los Angeles Times
*--* The top 20 *--*
Average weekday circulation of the nation’s 20 biggest newspapers for the six-month period ended Sept. 30 and percentage change from a year earlier:
1. USA Today, 2,296,335, down 0.59%
2. Wall Street Journal, 2,083,660, down 1.1%
3. New York Times, 1,126,190, up 0.46%
4. Los Angeles Times, 843,432, down 3.79%
5. New York Daily News, 688,584, down 3.7%
6. Washington Post, 678,779, down 4.09%
7. New York Post, 662,681, down 1.74%
8. Chicago Tribune, 586,122, down 2.47%
9. Houston Chronicle, 521,419, down 6.01%*
10. Boston Globe, 414,225, down 8.25%
11. Arizona Republic, 411,043, down 0.54%*
12. Star-Ledger of Newark, N.J., 400,092, up 0.01%
13. San Francisco Chronicle, 391,681, down 16.4%*
14. Star Tribune of Minneapolis-
St. Paul, 374,528, down 0.26%
15. Atlanta Journal-Constitution, 362,426, down 8.73%
16. Philadelphia Inquirer, 357,679, down 3.16%
17. Detroit Free Press, 341,248, down 2.18%
18. Plain Dealer, Cleveland, 339,055, down 4.46%
19. Oregonian, Portland, 333,515, down 1.24%
20. San Diego Union-Tribune, 314,279, down 6.24%
*Includes Saturday circulation.
Source: Audit Bureau of Circulations
Los Angeles Times